Jun 12, 2012

3 Reasons Why Apple Passbook Might be a 'Smarter' Google Wallet

At the WWDC today, Apple made a bunch of product announcements. Passbook was one of the most interesting new features of the iOS 6, apart from the turn-by-turn navigation that effectively shuts down the nice business of AT&T to charge $10 monthly fee for its app :-)

Passbook ‘paperlessly’ stores all your passes - loyalty cards, coupons, movie tickets, boarding passes etc and even visually ‘shreds’ them when you are done! Passbook was innocuously positioned as ‘the simplest way to get all your passes in one place’, but it is clearly the harbinger of Apple Mobile Wallet. The vision might look similar to Google Wallet, but apart from its cool features, Apple Passbook might be a much smarter mobile payment/ mCommerce strategy for three reasons:

Consumer Utility First - before big Vision
Instead of painting a big technology vision that might (or might not) be a reality in 5 years, Apple positions Passbook in a few simple, but high consumer utility scenarios that are applicable today. Boarding a plane & going to the movies are everyday scenarios where consumers struggle to deal with paper today. Giving an elegant solution to these problems provides concrete consumer utility - a critical driver for adoption. The challenge for Google Wallet (and other e-Wallet projects) has been the initial barrier for adoption, unless you are a major technology enthusiast and early adopter.

In vintage Apple style, some of the Passbook features are extremely intuitive - such as the geolocation sensing to automatically pop up the pass on your screen when you approach the movie theater to avoid the hassle of pulling out the phone and finding the app etc. I felt notifying the United passenger about gate changes in a real time boarding pass was absolutely a killer! We have not seen such simple & compelling demonstration of user value by any other mobile Wallet projects.

Mobile Loyalty First - before mobile payments
Apple starts with the store loyalty card scenarios and does not offer mobile payment or store your credit cards. As I wrote earlier, mobile payment is not a real problem for most consumers today. Even the smartest solution will still require carrying the plastic credit cards for the foreseeable future, until ALL the merchants you visit adopt THE mobile payment solution. Moreover, mobile payment is a highly immature market and an extremely difficult problem to solve due to the challenges of NFC, and that might be the reason why Google Wallet has not taken off. On the other hand, carrying plastic loyalty cards is an annoying problem today and can be solved one store at a time.

Apple is still positioned to win the mobile payments market, when it finally matures in 3-5 years. An Apple mobile loyalty & payment solution could also be far less intrusive to consumers, as unlike Google or Facebook, Apple business model is not driven by advertising and pushing many offers to consumers.

Ecosystem First - before all the answers
Passbook is clearly positioned as a platform with APIs that any developer can start writing applications on top of. I do feel bad for the many mobile loyalty start-ups that probably see their niche evaporate overnight, but it could be a great opportunity. Passbook gives a stable platform for companies - from big retailers to small startups - to build innovative applications in the loyalty & payments space. And nobody is better at building and managing an ecosystem to offer an end-to-end solution like Apple.

It’s even more significant here, as mobile payment is an ecosystem orchestration game, where only a neutral intermediary can win. A single provider will always struggle to get widespread adoption due to conflicting self-interests of parties. Consumers will never want to use 5 different apps either.  Retailers, wireless carriers, credit card companies, and banks are today in denial trying to build their own competitive payment solution, but they can work with Apple, who is not competing on payment. Hopefully, after a few failed attempts, they will be a lot more willing to embrace the Apple payment solution, when it comes out!

Of course, Google can be that intermediary, but starting with their own big bang payment initiative alienating many stakeholders probably didn't help. Facebook has the potential to enter offline commerce (as I speculated earlier), but after the IPO fiasco, I suspect the company’s first priority will be to appease the revolting shareholders and build up the mobile advertising revenue stream.

I don't know if Apple is really trying to kill Google, but it is gingerly getting into the local commerce, discovery & mobile payments and it will be a good thing for the consumers!

Here is an excellent Quora answer explaining the Passbook features in detail.


  1. Thanks for this article. A couple of thoughts:

    I don't see Passbook as a threat to mobile loyalty startups. The app is the easy part -- integration with merchant point of sale and CRM are the hard parts and where these companies will make their money. Passbook actually helps them by giving them visibility on the lock screen and a links to their infrastructure.

    Passbook certainly does support payments, so long as they can be executed by bar code. The challenge here is also at the POS, as it requires optical bar code scanners and integration. Really, even Mastercard & Visa could create an infrastructure to use Passbook -- but I'm not sure that's economical due to the POS integration issues.

  2. Hi Rick,

    Appreciate the comment and thanks a lot for clarifying some points I was not aware of.

    It's true that Passbook does not replace mobile loyalty start-ups, but will force them to pivot their strategy around Passbook. Totally agree about the value of CRM/ POS integration, but the retailer might also choose to do it themselves in a custom project, if more basic features come from iOS6 platform directly. Passbook now also becomes the aggregator (great for consumers!) eliminating the hope of any startup to build a critical mass of retailers around them.

    I agree Passbook can offer some payment features, but is far from a payment solution today. AFAIK, Passbook does not have NFC support nor the back-end payment transaction capabilities until it partners with banks or credit cards. Passbook can evolve into a payment solution over time, especially if it can work with existing hardware (scanners) plus some POS integration software instead of rebuilding your entire POS infrastructure for NFC (Google Wallet approach).

    Thanks again!

  3. So far, if one thing is certain, it is Apple not trying to make money from software. They design great software to sell hardware because that's where they see the money. Apple can design the most popular apps that are out there much better than their current design and either include them in the iOS or sell them as apps, but it's a conscious decision not to step on ecosystem's toes and allow them to build whatever they want to make iOS and the iOS devices even more desirable.

    Passbook could certainly process payments and if the next iPhone is NFC ready, Apple could go after the payment space. But, I strongly believe that they are more interested in empowering the ecosystem apps such as all the loyalty and payment apps to better integrate with user's workflow. Since Apple does have the best ecosystem the app developers will follow and integrate their solutions with Passbook and Apple might even get a revenue share out of it. I believe they want to make it extremely easy for the developers to make something for Passbook and if Apple does decide to connect with POS all the apps automatically can take advantage of that. It's a hub and spoke model. If this plays out well it is likely to further strengthen and expand the iPhone market.

    1. Hi Chirag,

      Thank you very much for taking the time to comment. Totally agree with your analysis. Passbook makes it quite easy for retailers or startups to use the platform features to build new loyalty-payment apps. I think Apple's ecosystem play is a much better approach than Google Wallet do-it-all.

      Your point on Apple's business model is quite interesting. They are focused on selling the devices and making a cut from the apps sold. They are not just trying to push ads, unlike Google. This could make it much less intrusive and a better option for consumers.


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